The (New Zealand) Economic Development Indicators 2007 Report was released recently (link is for the summary document).
Sadly, in addressing the report, Government Minister Pete Hodgson, the New Zealand Herald, and the Opposition National Party all seem to have bought into the “Keeping up with the Joneses” mentality rather than looking seriously at the underlying issues. Emotional insecurity and fear-based competitive aspiration are hardly a good basis for sensible economic policy making (see the story: Even Government agrees we’re poor cousins).
Apart from declaring GDP per capita growth a sacred quest, (specifically, “the holy grail” of economic indicators!), the Minister blamed our ‘poor’ GDP performance on poor labour productivity growth, even though, as the report notes, Labour Productivity is poorly measured in New Zealand, so ‘the rate might be misleading’. Indeed, the report says, where it can be measured accurately, ‘the average growth rate of labour productivity has exceeded Australia since 1988’. Looking at our Total Factor Productivity growth rate might be more relevant, if more complicated and less clear cut, and the report does offer some interesting measures of some contributing factors.
Obviously, to put GDP per capita on a pedestal, above all other goals, is just plain dumb. The report itself doesn’t do this. For starters, as a society we likely also have an interest in non-economic factors like quality of life (which, according to the report, we’re doing quite well at), sustainability (which the report has no measures of) and income inequality (which are reported as higher than average but not increasing over recent years).
But even on narrow economic grounds, we might question the primacy given by the Minister (and the opposition Finance spokesperson) to GDP per capita.
The report notes the greater than usual gap (for OECD countries) between New Zealand’s GDP (what we produce) and our GNI (what we earn), a gap which is due to our ever increasing net indebtedness (which means we end up paying increasing amounts in interest and dividends to overseas investors). Surely then, if we are aspiring to create economic growth that will benefit New Zealanders, GNI per capita might be a better focus for policy making?
Again, in terms of economic security, our low savings rate, and our continuing and deteriorating current account deficits are arguably more important targets than GDP per capita. As Brian Fallow of the Herald said a few months ago:
“Because of our high reliance on imported capital, New Zealand is vulnerable to a full-scale reversal of the global conditions of the past few years when credit was too easy, encouraging complacency, to one where credit is tight.
Our net international debt of $145 billion or 89 per cent of GDP is extremely high by international standards.”
Finally, the Minister bemoans the “wage-gap” between New Zealand and Australia and the number of Kiwis moving to Australia. It is a consistent theme in public debate in recent times, usually seen as an unalloyed negative condition, yet there may be some positive spin-offs for New Zealanders (beyond the late Robert Muldoon’s quip about such emigration raising the average IQ of both countries!) – the report notes that New Zealand has consistently lower levels of unemployment than Australia (and most other OECD countries).
GDP per capita is not a “holy grail”. There is no one indicator that is. Good policy making needs to look at a range of information and interrelationships, and weigh them up through the lens of social values.
The study that prompted the story (link is for the full reports).